Are Poor Metrics Holding the Online Industry Back?

 Interactive, Media, Strategy, Web 2.0  3 Responses »
Oct 292008
 

A recent survey by McKinsey highlights the growing challenge faced by marketers in deciding how to allocate their media spending:

The rapid growth of online advertising hides a serious challenge: the digital world has developed faster than the tools needed to measure it…A June 2008 McKinsey digital-advertising survey of 340 senior marketing executives around the world shows the breadth of the gap between what’s needed and what’s available. Hobbled by nascent technologies, inconsistent metrics, and a reliance on outdated media models, marketers are failing to tap the digital world’s full power. Unless this problem is addressed, the inability to make accurate measurements of digital advertising’s effectiveness across channels and consumer touch points will continue to promote the misallocation of media budgets and to impede the industry’s growth.

There are three problem areas:

1. Media Planning – New tools are needed to help media planners compare the impact of on- and offline efforts.

2. Conversion measurement – Greater insight is required into how online messaging converts target consumers into making online and offline purchases.

3. Social optimisation – Targeting methodologies have not yet adapted to the changing context in which individuals are consuming online content; in particular, changed context(s) within social environments and how word-of-mouth and recommendations fit within this category.

The survey found that over 50% of respondents were not happy with the current processes for media allocation and measurement. Surprisingly, only 50% of respondents indicated that they used click-through rates to determine the effectiveness of their direct-response advertising – which suggests the rest are preferring qualitative over quantitative measures. Only 30% of respondents indicated that they considered the offline impact of online advertising.

Few in the online industry would claim that the ‘measurement challenge’ has been solved, but it doesn’t seem fair to suggest that poor metrics alone is holding the industry back. Despite having access to over a decade of data on how to use the online medium effectively (either as a stand-alone channel or in conjunction with other channels), it seems that a sizeable number of marketers have failed to adapt their toolkits and processes, or invested in the requisite skills to optimise the ROI of their online spend.

 

Risks of the ‘AntiCommons’ and the Gridlock Econony

 entrepreneurs, innovation, Web 2.0  No Responses »
Oct 242008
 

Michael Heller has just released an ebook Gridlock Economy: The Tragedy of the Anticommons, which provides a short overview of the thinking encapsulated in his new book by the same name.

It provides an interesting counter-point to the growing trend of co-creation and  co-ownership of various assets, from (physical) property through to software, knowledge and IP.

Private ownership usually creates wealth. But too much ownership has the opposite effect—it creates gridlock. When too many people own
pieces of one thing, cooperation breaks down, wealth disappears … everybody loses. Gridlock is a free market paradox.

Heller argues that current wealth creation strategies – particularly knowledge-related (e.g. patents and copyright) – are highly dependent on the ‘assembly’ model: taking bits and pieces of previously created knowledge and assembling them in new ways. A case in point is modern drug research. New discoveries are almost entirely reliant on earlier research activities, some of which may be covered by patents. Similarly, when researchers find new applications for existing drugs, they will almost certainly need to secure permission from the drug’s owner.

Successful ‘assembly’ business models can be tough, but not impossible, when assets are concentrated in the hands of a few. However, when ownership is heavily fragmented and where, as is often the case, a single hold-out can scuttle a deal, then ‘assembly’ business models become highly problematic (hence the term ‘gridlock’).

The ‘tragedy of the anticommons’ arises when ownership of a specific resource is divided among too many entities, with the result that it is under-utilised or lay unused. One example from Heller:

Consider the example of a brother and sister who jointly inherit the family home. “All of us as parents want to believe our children will be friendly when we’re gone,” says an estate planning expert, but leaving the house to the kids is “a sure recipe for disaster.” One wants to rent the house out; the other, tear it down. If they can’t strike a deal, neither can move forward. The house sits empty. That’s gridlock…Now imagine twenty or two hundred owners. If any one blocks the others, the resource is wasted. That’s gridlock writ large—a hidden tragedy of the anticommons. I say “hidden” because underuse is often hard to spot. For example, who can tell when dozens of patent owners are blocking a promising line of drug research? Innovators don’t advertise the projects they abandon. Lifesaving cures may be lost, invisibly, in a tragedy of the anticommons.

Returning to Fundamentals – What happens when funding dries up

 Strategy  No Responses »
Oct 172008
 

It’s has been a fair while since my last post, as I’ve been grappling with some interesting strategy issues for a client project.

However, I’ve been having a few conversations with friends and colleagues about the likely impact of the recent economic crisis on the ‘Web 2.0′ scene. These conversations reminded me of a paper that strategy guru Michael Porter wrote around the time of the first dot.com bubble, which was fairly prescient then, and remains so for the current environment:

It is hard to come to any firm understanding of the impact of the Internet on business by looking at the results to date. But two broad conclusions can be drawn. First, many businesses active on the Internet are artificial businesses competing by artificial means and propped up by capital that until recently had been readily available. Second, in periods of transition such as the one we have been going through, it often appears as if there are new rules of competition. But as market forces play out, as they are now, the old rules regain their currency. The creation of true economic value once again becomes the final arbiter of business success.

(From Strategy and The Internet, Harvard Business Review, March 2001)

We will undoubtedly see considerable carnage among so-called Web 2.0 start-ups (and even some more established entities) as private equity dries out. While that will be painful for those concerned, it will – over the medium term – be good for the industry, as it will weed out businesses with poorly conceived revenue models and customer propositions, and unsustainable business models.